Useful Advice for Gulf Coast Hotel Purchase

Working closely with the GRP Capital Team, our recurring client purchased a new Gulf Coast hotel.

This purchase did have a few roadblocks, which sometimes happens!

The buyers put down hard money when they signed a Purchase Sale Agreement (PSA). However, during the underwriting process, the appraised value came up short.

Rick Patel, GRP President, stated, “Lenders and appraisers are cautious right now, especially in the hospitality arena. It can be tricky to negotiate with a seller when an appraised value is below their expectations. They can have a fixed idea of what they think their property is worth. In this instance, we worked closely with the borrowers and the broker to bring the PSA in line with the market value. This had to be done in order to close the loan. Getting to closing required tact and finesse.”

Advice for When Appraisals Come in Low

• Prevention first! GRP Capital works closely with borrowers to make sure the loan is appraised to show the full value. This sometimes means working with accountants to recategorize expenses. It also means combing financials to find addbacks. Addbacks are current costs will not be borne by the new buyer. Finally, we work closely with the appraisers to make sure they have a clear picture of the revenue potential of the property.

•Renegotiate Purchase Price: Ultimately, lenders will not loan money which exceeds the value of the property. It is also unrealistic, costly and time consuming to try to find another lender and hope that they will raise the appraised value. So, once a buyer has received a lower appraised value, they need to return to the seller to discuss the issue. Hopefully, the seller will be reasonable. It’s critical that the seller understands that a new buyer is not going to repair this problem. Indeed, a new purchase price is the only fix.

• Make Sound Business Decisions: A lower appraised value should cause the buyer to consider the project in a new light. Why have market values come up short? Can the buyer manage the property more profitably or will they face the same issues as the seller? And if the seller refuses to budge on price, a strong business owner has to know when to walk away.

More Information on the Appraisal Process

Our GRP Capital team specializes in finding the right lender for each project. We save our clients time and money, as we research the best choices for their funding sources. Our experience allows our clients to find funding that is project-appropriate and will allow for sufficient cash flow. Whether you are looking to refinance, purchase or engage in construction, we would love to discuss your business plans with you. If you are considering becoming a first-time (or second or third time!) buyer, we can assist you.